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Term of the Day: Efficient Market Hypothesis (EMH)

Author: David J. Kosmider (info)
Website: http://eidoan.com/
Posted: February 13th, 2007 at 8:00 am EST
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The EMH in its strongest form suggests that the stock markets are completely efficient, because all information that is known about a company’s stock is believed to have been acted upon as of that point in time. EMH thus believes future price action is completely random, based only upon new information that may be released and acted upon at some future date. EMH is a key assumption of traditional options pricing models. Contrast to Behavioral Finance.

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